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Where Lightning Strikes - Lone Pine’s Low P/E Stocks in Review

December 29, 2013 | About:
Sally Jones

Sally Jones

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The legendary hedge fund investor and philanthropist Steve Mandel founded Lone Pine Capital LLC in 1997.  His hedge fund is named after a pine tree at Dartmouth College, his alma mater.  Legend has it that the lone pine tree survived a lightning strike in 1887.

Prior to founding Lone Pine Capital, Mandel was the senior managing director and consumer analyst at Tiger Management Corporation, where he earned his Tiger Cub fame working for the legendary Julian Robertson for seven years.  Mandel was also a mass-market retailing analyst at Goldman Sachs for six years, and a senior consultant at Mars and Company, when he was fresh out of Harvard in 1982 with an MBA.

Guru Mandel is the managing director and portfolio manager of Lone Pine Capital, a privately-owned hedge fund based in Greenwich, Connecticut. With offices in London, Hong Kong and New York, Lone Pine invests in public equity markets globally and has consistently beaten the S&P 500 index by over 20% since it started in 1997.

On the 2012 Forbes 400 list, Guru Steve Mandel was ranked 360th richest.  His net worth is around $1.8 billion, as of September 2013. In 2012 Forbes ranked Steve Mandel as the 11th highest earning on a list of 40 hedge fund managers and traders.  His earnings for the year were $350 million, and according to Forbes, all of Mandel’s funds netted more than 22% in 2012.

Mandel’s investment philosophy is that of a long/short equity money manager, employing fundamental analysis with a bottom-up approach to picking stocks.  Once called a “fantastic analyst” by Seth Klarman, Mandel’s focus on stock analysis includes looking for good businesses, strong management, and stock valuations lower than their intrinsic value.

As a bottom-up investor, Mandel downplays macroeconomics and cycles, and focuses on the business itself. He studies a company’s practices and operations to assess future potential.  While he does look at market trends, Mandel deals with established companies on the micro level.

The Lone Pine Capital website is private, but according to GuruFocus research, Steve Mandel’s portfolio has 57 stocks, eight of them new, with a total value of $22.39 billion, and a quarter-over-quarter turnover of 22%. The portfolio is heavily weighted with consumer cyclical at 27.4%, technology at 19.8% and financial services at 9.7% .The stocks bought by Steve Mandel have averaged a 12-month return of 24.55%.

Here’s a review of the three lowest P/E stocks in the Lone Pine Capital portfolio, as of Sept. 30, 2013.

 

Liberty Media Corporation (LMCA), P/E: 2.10

Shares:  1,611,640

Value:  $237,153,000

Weightings:  1.1%

Up 35% over 12 months, Liberty Media Corporation has a market cap of $16.78 billion; its shares were traded at around $146.90 with a P/B ratio of 1.23. The company does not pay a dividend.  

Liberty Media Corporation owns interests in a broad range of media, communications and entertainment businesses. Those interests include subsidiaries Atlanta National League Baseball Club Inc. and TruePosition Inc., interest in SiriusXM, Live Nation and Barnes & Noble, and minority equity investments in Time Warner Inc. and Viacom.

The company is not rated for business predictability.

The GuruFocus analysis of the company shows two warning signs and one good sign.

Guru Action:  As of Sept. 30, 2013, Steve Mandel reduced his position by 13.49%, selling 251,284 shares at an average price of $141.37 per share, for a gain of 3.9%.  

Over three quarters of trading, he has averaged a gain of 33% on 1,918,415 shares bought at an average price of $110.26 per share.  Selling, he has averaged a gain of 7% on 306,775 shares at an average price of $137.38 per share.  

Tracking historical share price, revenue and net income:

1388349173756.png

 

Twenty-First Century Fox Inc. (FOXA), P/E: 13.40

Shares:  18,700,570

Value:  $626,656,000

Weightings:  2.8%

Up 58% over 12 months, Twenty-First Century Fox Inc. has a market cap of $79.77 billion; its shares were traded at around $34.96 with a P/B ratio of 4.69. The dividend yield of FOXA stocks is 0.60%.  

Incorporated in 2004, Twenty-First Century Fox Inc. is a diversified media and entertainment company. Its segments include Cable Network Programming, Television, Filmed Entertainment and Direct Broadcast Satellite Television.

GuruFocus rated FOXA with one out of five stars for business predictability.

The GuruFocus analysis of the company shows eight warning signs.

Guru Action:  As of Sept. 30, 2013, Steve Mandel increased his position by 35.93%, buying 4,942,795 shares at an average price of $31.48 per share, for a gain of 11.1%.  

Over 11 quarters, he has averaged a gain of 61% on 27,019,120 shares bought at an average price of $21.67 per share.  He averaged a gain of 26% on 8,318,550 shares sold at an average price of $27.67 per share.  

Tracking historical share price, revenue and net income:

1388349537858.png

 

Gap Inc. (GPS), P/E: 13.80

Shares:  22,305,225

Value:  $898,454,000

Weightings:  4%

Up 24% over 12 months, Gap Inc. has a market cap of $17.34 billion; its shares were traded at around $38.62 with a P/B ratio of 6.11. The dividend yield of GPS stocks is 1.62%.  

Incorporated in 1969, Gap Inc. is a specialty retailer offering clothing, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brands.

GuruFocus rated GPS with three out of five stars for business predictability.

The GuruFocus analysis of the company shows one warning sign and three good signs.

Guru Action:  As of Sept. 30, 2013, Steve Mandel increased his position 16.44%, buying 3,148,743 shares at an average price of $43.13 per share, taking a loss of 10.5%.  

Over a five-year trading history of gains, he has averaged a gain of 39% on 28,423,876 shares bought at an average price of $27.79 per share.  Selling, he averaged a gain of 14% on 6,118,651 shares at an average price of $33.96 per share.  

Tracking historical share price, revenue and net income:

1388352780827.png

 

Here’s the complete portfolio of Steve Mandel.

After graduating from Dartmouth College, Steven F. Mandel, Jr., earned his MBA from Harvard Business School in 1982.  A civic-minded philanthropist, Mandel founded the Lone Pine Foundation to help distressed families in New York City. His philanthropic giving includes $134 million to his other non-profit, Zoom Foundation. Mandel has also supported the Children's Aid Society of New York, Phillips Exeter Academy, and the Fairfield County Foundation.

 

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About the author:

Sally Jones
Sally Jones writes about Real Time Picks. She says, "I truly enjoy watching the Gurus in realtime and telling their story."

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